How To Invest Better in 2024

Jan 23, 2024

It’s no secret that 2023 was a bad year.

But I truly believe that 2024 will be the year of clarity.

Here’s why: Because we have officially hit ‘the bottom’.

2023 was a bad year simply because all of it was unknown.

In unknown markets, businesses shut down and things come to a complete halt because it is nearly impossible to plan when unknown things are happening, like inflation doubling every month and changing drastically.


The US inflation rate did drop to 3.1% in Dec, down from 3.2% in October 2023, but with the volatility and unknowns in the market, people can’t buy homes, and people can’t buy capital.

Things just shut down.

What’s bad about being in an unknown market is that you cannot plan for the unknown.

It’s nearly impossible to be able to plan and you just have to hope (which is what many of us did all of last year). Here is the silver lining:

If we know that the market is ‘bad’ but have hope and belief that the market will return to ‘good’ later, then people will start to invest in things like real estate and the stock market again.

We have been in a year of transition on capital and expectations.

Which is why you should be excited for 2024.

 

What is the next cycle going to look like?

 

2024 is going to be the year of clarity. The market this year is going to get a lot clearer.

2025-2026 will be the year of normalization within the markets, and the economy, along with the introduction to the new cycle.

This is, by the way, the same stance I had two years ago. In 2020-2021, I was adamant that 2023 was going to suck. And it came to fruition when everyone this past year had no clue what to do.

While I do say that 2024 is going to be the year of clarity, it will not be the year we return to normal.

Simply because it’s an election year.

Election years are always very chaotic and the noise from the election chatter is bound to affect how people and society perceive the economy.

But understand that in the financial background, there will be clarity, there will be investing happening, and there will be overall movement in the market again this year.

So if there is nothing else you take away from this, let it be this:

Do not let yourself be swept up in the noise of politics and be blind to the reality of the financial markets.

 

The Fed has officially shifted its outlook.

 

The Fed has fundamentally changed its outlook and stance on controlling the economy using interest rates.

They have gone from ‘We will do whatever needs to be done to curve inflation and raise interest rates as high as we need to’ to ‘We see dangers in the marketplace so we’re not doing anything anymore.’

Most of these ‘dangers’ and red flags the Fed has seen are changes in business activity, tightening of spending, increased debt from credit cards, reduced savings, and unemployment numbers.

The money supply is shrinking, consumers are being tapped out, and their savings are dwindling.

All of this shows an end to ‘easy money’.

So, what do I think is going to happen?

I believe that the Feds will drop interest rates in 2024…but it’s not going to be dramatic.

There will be a flattening of inflation, which is all the Fed's decision, but we will not see drops in rates to 3-4%.

Instead of the Fed using big drops in interest rates to start easing the market, unless they’re forced to because of a recession, they will begin to reduce their balance sheet. This, combined with small interest rate changes, will begin easing the 2024 economy.

There also will not be dramatic rate drops because of the 2024 elections (again, these are going to be a disruptor this year).

The Fed is terrified of doing anything that seems politically biased, so unless they are forced to, interest rates will not drop below our historical norms.

The Fed also did nothing at the end of 2023 and interest rates continued to drop, showing that the Fed does not need to do anything and the markets are still projecting out as hoped for and expected.

 

Economists and analysts also see the probability of us having a soft landing up at 47%, with a lower probability of a recession in the next year at 41%, which is down from 49%.

All these data and graphs show that the economy is doing better than people thought, and sentiment is up overall about where the market stands compared to earlier in 2023.

Which is completely counterproductive to lowering interest rates. 


3%-4% Interest Rates Are Not The Norm

 

It’s also important to note that the 3%-4% interest rates from a few years ago weren’t just out of the norm….they never even existed before the last cycle in 2008.

After 2008, my team and I got a 5% interest rate on a $30mil portfolio, which we decided to lock in for a decade.

Why? Because I thought there was no way that rates would drop below that because they had never in my lifetime, or any of my partner’s lifetime, dropped that low.

Another interesting fact that a lot of investors dont’ realize is that the majority of fund managers and syndicators right now were in high school in 2008 and have never been through a recession before.

Read that again 👆.

These same newer investors also keep writing and projecting that they believe the market is going to go ‘back to normal’, meaning 3%-4%, when in reality, normal is more around 6%.

There is a very strong chance, that in our lifetime, we will never see interest rates go down to 3% ever again, and you should never plan on that happening moving forward in any of your deals.

To wrap it up ...

 

2024 is going to be when we start to see a return to normal.

It’s not THE year (that will be 2025-2026), but it will be a year of clarity after a volatile and unknown 2023.

Once again, it’s going to seem chaotic because of elections but this is going to be THE year that you want to be in the game.

You need to stop waiting for the bottom to buy.

The problem with this mentality is that nobody knows the bottom when they’re in it, but you will only get bottom prices when prices are dropping, not when they are rising.

You need to understand the landscape that you’re investing in but don’t solely invest because of the landscape.

I’ll show you one reason why…

When inflation started to drop in the last 1970’s and early 80’s, the Fed eased monetary policy, which caused inflation to skyrocket.


Once inflation headed back down, it eased and then it shot back up. It was like pouring gas on a fire.

The Fed is very nervous about this happening right now, and just because inflation is dropping now does not mean that it’s sustainable.

So do not assume you know what is going to happen, because history can repeat itself (which we and the Fed do not want to happen).

You need to guard yourself from these extrinsic risks and avoid putting yourself at a short-term disadvantage.

Buy deals based on intrinsic, not extrinsic value, so when the landscape changes and improves, that extrinsic value explodes your wealth.

If you buy a good deal in a bad market, Johnny, when the market eventually turns around, that extrinsic value will explode your growth and your wealth.

Rely on the intrinsic values of a great deal in 2024, and refinance later down the line if and when interest rates drop.

This is what your mindset should be going into 2024.

And more than ever, it will be important to keep a calm, cool head.

2024 is going to be characterized by the ‘noise’ of the elections, and just because people are talking scared or seem important on social media or on the news, it doesn’t mean that what they are saying is actually important.

When assessing the markets, remember these signals to watch for and understand what’s happening:

1. Inflation

2. Unemployment

3. Microeconomics

4. Housing

5. Investing fundamentals.

Hold on to these and this will help guide you through a constant craziness of noise this upcoming year.

Don’t let your emotions drive bad investing decisions and use this year to take advantage of enormous opportunities that come your way.

Sellers sell a present discount for future loss potential. When people think it will get better, sellers sell with a premium for future gains.

Good deals are found while everyone thinks that it will get worse.

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